Consumer watchdog considering repeal of payday lending rule

FILE - In this Monday, Nov. 27, 2017, file photo, Mick Mulvaney speaks during a news conference after his first day as acting director of the Consumer Financial Protection Bureau in Washington. The CFPB is reconsidering a key set of rules enacted in 2017 that would have protected consumers against harmful payday lenders. The bureau, now under Trump administration control, says it plans to take a second look at rules put in place last year under an Obama appointee. (AP Photo/Jacquelyn Martin, File)

NEW YORK (AP) — The Consumer Financial Protection Bureau has decided to reconsider a key set of rules enacted last year that would have protected consumers against harmful payday lenders.

The bureau, which came under control of the Trump administration late last year, said in a statement Tuesday that it plans to take a second look at the payday lending rules. While the bureau did not submit a proposal to repeal the rules outright, the statement opens the door for the bureau to start the process of revising or even repealing the regulations. The bureau also said it would grant waivers to companies as the first sets of regulations going into effect later this year.

"We have been worried that the CFPB could revisit these rules. We just didn't expect it so soon," said Lauren Saunders with the National Consumer Law Center.

The cornerstone of the rules enacted last year would have been that lenders must determine, before giving a loan, whether a borrower can afford to repay it in full with interest within 30 days. The rules would have also capped the number of loans a person could take out in a certain period of time.

If allowed to go into effect, the rule would have had a substantial negative impact on the payday lending industry, where annual interest rates on loans can exceed 300 percent.

The industry derives most of its profits from repeat borrowers: those who take out a loan, but struggle to repay it back in full and repeatedly renew the loan. So when the rules were finalized last year, the bureau estimated that loan volume in the payday lending industry could fall by roughly two-thirds, with most of the decline coming from repeat loans no longer being renewed. The industry, which operates more than 16,000 stores in 35 states, would likely see thousands of payday lending store closures nationwide. But most of these rules would not have gone into effect until August 2019.

Since Obama-appointee Richard Cordray stepped down as director in November, the Trump administration has been moving quickly to clamp down on the bureau's activities. The bureau is now under the control of Mick Mulvaney, also the White House's budget director, who has called the bureau a "sick joke" in comments before he took this job. During the 2016 election cycle, when Mulvaney was still a Congressman from South Carolina running for re-election, he received $31,700 in contributions from the payday lending industry, according to data from the Center for Responsive Politics.

The payday lending rules were finalized in the last weeks of Cordray's tenure. There is a bill in front of Congress that would repeal the payday lending rules entirely as well.

A total repeal of the rules, if the CFPB decides on one, could take years to wind itself through the appropriate regulatory channels. The CFPB would have to conduct research to show the current rules are not working, put out notices for repealing the rules, and consider public and industry comments, among other steps. The bureau started building a case for its current payday lending regulations back in 2012.

A CFPB spokesman referred questions about what specifically the bureau plans to do with the payday lending rule to Mulvaney's office in the White House, which declined to comment beyond the original statement.

Dennis Shaul, CEO of the Community Financial Services Association of America, which represents the payday lending industry, said he was "pleased" that the CFPB was revisiting the regulations.

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Ken Sweet covers banks and financial issues for The Associated Press. Follow him on Twitter at @kensweet.

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